What a decade of law firm data really reveals

Every law firm leader knows the headline growth numbers. Fewer have looked closely at what sits beneath them.

Jonathan Watmough, former managing partner of RPC, has spent the last few years doing exactly that: building a dataset from two hundred sets of audited accounts to test the profession’s growth story against reality. What he found was not what he expected. Revenue per lawyer down at 60% of Top 100 firms. Profit per equity partner falling at more than a third of them. A decade of headlines that, once adjusted for inflation, tell a very different story.

Saxton Bampfylde’s Kate Ludlow and Philip Rodney, sat down with him to talk about what the data actually shows, why so many firms convinced themselves the model was working, and what separates the firms genuinely pulling ahead from those quietly running to stand still.

---

 

Your report is titled “All Flash But No Cash.” That’s a stark verdict on an entire generation of strategy. When you went into the data, were you confirming a suspicion or did it genuinely shock you?

It shocked me. I’d been away for a few years down a technology rabbit hole, and when I climbed out around the time of Covid I was looking at the headlines thinking: it now looks like one-way bets; perhaps I mugged myself by getting out.

Then I started visiting managing partners and pulling their accounts, adjusting for inflation, comparing against ten years earlier, and the press narrative just didn’t tally. So I built a dataset from two hundred sets of audited statutory accounts, and some really strange patterns started to emerge.

The headline numbers look fine. The average Top 100 firm grew revenue 41% and profit 47% in real terms over the ten years to 2024. But once you annualise those figures, that’s 4% and 5% per year, respectable, but not remarkable, and a long way short of the “double-digit growth” narrative that’s been the annual refrain. More importantly, those top-line figures masked what’s actually happened to the underlying health of firms’ businesses. Sixty percent of Top 100 firms saw Revenue Per Lawyer, the best measure of the market value of the work being done,  decrease in real terms over that decade once you take inflation into account. Sixty percent saw Profit Per Lawyer decrease. And 37% saw Profit Per Equity Partner decrease, meaning more than a third of the market’s top firms left their average equity partner earning less in real terms than they were ten years before, despite a golden age for client demand.

That’s the uncomfortable truth for many firms. All flash, but no cash.

 

How did so many firms convince themselves the model was working?

One tell-tale is in what happened to staff costs. The old rule of thumb in law firms was a third, a third, a third: a third of revenue on people, a third on everything else, a third left over as partner profit. By the year ending 2024, the average Top 100 firm was spending 43% of revenue on staff costs alone. The old David Maister model (get as many people as possible, working as many hours as possible, charge them out at as much as possible and pay them as little as possible) had quietly broken, but nobody was looking at it in real terms.

Covid was the accelerant. Demand spiked and people thought: we’re so busy, this is great. But firms weren’t making conscious decisions about the quality of work they were taking on. In too many cases it was simply volume. Meanwhile the cost base dramatically increased and ‘wellbeing’ took precedence over performance management.

The deeper issue is this: it’s easier to grow than to sort out underlying problems. Many firms just kept adding lawyers to do more things in more places — same model, more people, new offices. Growth became a way of trying to outrun performance reality. The market value of the work to clients wasn’t improving for most; if anything it was declining, which is what the RPL data shows. All you’re doing at that point is milking the business. And eventually, as costs keep climbing, the cow runs out of milk.

The paper makes a stark distinction between three types of firm, those that have been thriving, those merely defending, and those in retreat. The data suggests the Top 100 divides into roughly equal thirds across those categories. The defending firms aren’t failing in any dramatic sense; they’ve just been locked onto a form of institutional autopilot, tinkering at the edges, pursuing efficiency rather than strategy, and blending into the herd rather than standing out. The retreating firms have been trading down in the value of their work while becoming overwhelmed by the cost of doing it. I never name names, but some of the firms in that latter group would surprise you.

 

Most leadership teams inherit the firms they lead: the equity model, the partner cohort, the culture. You’re unsparing about equity management as a fix, a palliative, not a cure. So what does good leadership actually look like from inside that constraint?

The equity gate management point matters because it’s where the data is most revealing. Average Top 100 PEP only grew at all over ten years because while profit increased 47%, equity partner numbers were kept at 34% growth, holding back the equity headcount to protect the returns. And the disparity within the equity widened dramatically: average PEP grew just 9% in ten years, but the top of the equity grew 59%. Firms were robbing Peters and Petras to pay Pauls and Paulines. But that’s not a strategy for long-term success. It’s reactive and needs-must but ultimately unsustainable redistribution.

There’s a great line from the psychologist Carl Jung to the effect that unless you make the unconscious conscious, you will get what you’re given and call it fate. That’s the law firm condition in a nutshell. The behaviour isn’t strategic misdirection, there’s no conscious decision to do the wrong thing or maintain business as usual. It’s just the system default. Every commercial law firm equity partnership has a basic existential mode: carry on some variation of an annual profit-sharing enterprise, make only incremental change, and do broadly the same things with broadly the same people, only usually on a larger scale.

Breaking out of that requires a whole confluence of conditions to align: usually a serious reason to change, and a force-of-nature individual willing to take a risk that is potentially career suicide. Good leadership means getting everything out on the table, this is our reality, this is our profitability, this is where we’re heading and it isn’t sustainable, and then managing the politics of getting people to act on it. Tony Blair makes the point brilliantly in his recent book On Leadership: your job as a leader is to manage the politics of change. You start at your most popular and your least competent, and you finish at your most competent and your least popular. You spend your political capital and eventually people stop listening. It’s dangerous but unless someone is willing to put their head above the parapet and take responsibility, nothing of any importance changes.

 

The firms that have bucked the trend are a surprisingly disparate group. Is there a common thread, or is outperformance largely a product of history and luck?

It’s partly luck in the sense that if you were born into one of the large institutional firms, organisations that broke the back of traditional lockstep profit-sharing many years ago and made meritocracy more of a cultural norm – life is considerably easier. Partners had long since ceded the personal veto and high-performance is an institutional norm.

But that’s not the whole story, and the data shows it. Look at the names among the high performers: TLT, Addleshaw Goddard, Shoosmiths, Hill Dickinson. These are not elite Magic Circle firms. But what these firms share is that they had enough ambition in the equity partnership to break out of the default system and then someone with the leadership to light that fire.

The paper uses a striking image: ambition is a river of petroleum waiting to be ignited. But if there isn’t enough of it, no amount of leadership can light a fire. And the level of ambition in the average law firm equity partnership is quite low. The typical equity partner is earning seven or eight hundred thousand a year, is naturally risk-averse, and is acutely aware that a key client being lost could switch everything off. That psychology drives business as usual just as powerfully as governance or profit-sharing does.

 

You lay out three options for struggling firms: turnaround, merger, or sale. Doesn’t merger simply create a bigger struggling firm and doesn’t sale just pass the problem on?

On merger, essentially, yes. No firm today is going to take on your problems, and if you merge with a firm that has the same problems or bigger ones, you’ve made everything worse. That’s why genuine mergers barely happen, despite all the talk.

On sale: private equity has stepped into the gap, but I’m sceptical it resolves anything fundamental. PE is impatient capital looking for efficiency savings and a four-to-six year exit. The business of a typical commercial law firm, episodic, personally held in partner-client relationships, notoriously resistant to efficiency drives, doesn’t fit that playbook neatly. The numbers touted at the outset often look rather different once due diligence is done and deal structures are proposed. Both buyers and sellers need to go in with their eyes open.

What I think is genuinely interesting and where the real opportunity lies, is patient minority capital investment: a long-term balance sheet investor seeking income returns rather than a quick exit, whose interests are actually aligned with the equity partners. That gives a firm venture capital to invest in AI and lateral hiring, a means to buy out vested interests that are blocking change, and the professionalisation of governance without surrendering control. For the right firm with genuine ambition and strong underlying fundamentals, that has the potential to be transformational.

 

You were managing partner of RPC for a decade. You’ve now produced what is, in effect, a rigorous post-mortem on a strategy that many of your peers, and perhaps you, were pursuing at the time. What would you do differently?

It’s hard to compare the two periods directly, my time at the helm between 2006 and 2016 was a fundamentally different environment, and in some ways the financial crisis was actually easier to navigate. The threat was existential and visible. You could make hard decisions under cover of darkness and nobody questioned the motive. Never let a crisis go to waste, as the saying goes, and it’s a serious point. People don’t change unless they have to.

But if there’s one thing the data crystallises for me, it’s this. The paper shows that the firms which have genuinely thrived are not distinguished by having a better strategy in the abstract sense. They are distinguished by having had an equity partnership aligned enough, and ambitious enough, to actually implement one. Strategy without alignment is just aspiration. And alignment without ambition is just a polite conversation.

The conditions for change are nearly always attitudinal in the end. AI, the competition, market maturity – those are largely outside your control. How you interact with each other, your appetite for honest conversation, your willingness to move – that is entirely within it. And it requires zero talent. That’s what makes it so frustrating when firms don’t do it, the problem is entirely soluble.